PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

23 April 2010

Foreign Exchange Reserves Rose To US$95.7bn As

At 15 April

◆ The foreign exchange reserves increased by US$0.44bn in 1H April to US$95.7bn as at 15 April,

compared with a decline of US$1.5bn in 2H March. This suggests that the repatriation of export proceeds and some
inflow of foreign portfolio funds were more than enough to pay for import bills. Although the foreign portfolio
investment in fixed income papers fell by RM1.0bn in February, the first decline in eight months and compared with
an increase of RM4.1bn in January, we believe the decline is likely to be temporary and the holding of fixed income
papers by foreign investors is likely to have bounced back in March-April. Meanwhile, total holdings in fixed income
instruments by foreign portfolio investors fell to RM72.3bn at end-February, after rising to a 17-month high of
RM73.3bn at end-January (Chart 1). In ringgit terms, the foreign exchange reserves rose by RM1.4bn in
1H April to RM313.1bn as at 15 April, a rebound from a decline of RM20.0bn in 2H March, as the decline in the
previous month was affected by a revaluation loss following the appreciation of the ringgit against major currencies
in 1Q 2010. At the current level, the foreign exchange reserves are sufficient to finance 8.8 months of retained
imports and cover 4.0 times the short-term external debt of the nation, compared with 8.1 months of retained
imports and 4.0x of short-term external debt cover a year ago.

Chart 1
Foreign Holdings Of Debt Securities

R M bn

140

120

100

80

60

40

20

0
2007 J 2008 J 2009 J 2010

◆ In line with a pick-up in foreign exchange reserves, the ringgit has been on an appreciating trend against the US
dollar in recent months. This is on account of inflow of portfolio funds in anticipation of further hike in interest rates
by Bank Negara Malaysia and positive news flow following the launch of the New Economic Model to transform the
economy into a high income nation by 2020. As a result, the ringgit strengthened by 6.3% against the US dollar
from 1 February until 21 April, after falling by 0.5% in the previous two months. Similarly, S$, baht, peso and rupiah
appreciated by 2.4%, 2.6%, 4.0% and 3.6% respectively against the US dollar during the same period. The
Japanese yen and euro, on the other hand, fell by 4.1% and 1.6% against the US dollar during the same period,
as these countries are likely to be slow in normalising their monetary conditions. Meanwhile, the Chinese renminbi
has been pegged to the US dollar since July 2008. Among the regional currencies, the ringgit is running ahead, as

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

A comprehensive range of market research reports by award-winning economists and analysts are Page 1 of 2
exclusively available for download from www.rhbinvest.com
 23 April 2010

Bank Negara Malaysia was the first country in this region that has started to normalise its monetary conditions and
investors are expecting more to come. However, we believe the surge in ringgit vis-à-vis the US dollar might have
over done. This, coupled with possible disappointments over an OPR rate hike by Malaysia in May and an
appreciation of the renminbi in the near term, suggests that the ringgit will likely weaken back. We expect the
ringgit to fluctuate at around RM3.20-3.30/US$ for the rest of 2010 before settling at RM3.20/US$ by end-
2011.

◆ Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank rose to an
estimate of RM231.7bn in mid-April, from RM218.7bn at end-March 2010 and RM223.3bn at end-2009 (see Chart 2).
This was reflected in a pick-up in liquidity mopped up by the Central Bank through the issuance of BNM bills, which
rose to RM51.6bn in mid-April, from RM35.6bn at end-March 2010 and compared with RM33.4bn at end-2009. This
was aided by an increase in the repurchase agreements (repos), which rose to RM25.4bn in mid-April, from RM23.2bn
at end-March 2010 and compared with RM21.6bn at end-2009. These were, however, offset partially by a drop in
liquidity mopped up by the Central Bank through interbank borrowings, which declined to RM154.7bn in mid-April,
from RM159.9bn at end-March 2010 and compared with RM168.3bn at end-2009. Excluding the repos, the amount
of excess liquidity mopped up by the Central Bank rose to an estimate of RM206.3bn in mid-April, from RM195.5bn
at end-March 2010 and compared with RM201.7bn at end-2009.

Chart 2
Excess Liquidity Mopped Up By BNM

RM bn

352

302

252

202

152

102

52

2
00 01 02 03 04 05 06 07 08 09 10

IMPORTANT DISCLOSURES
This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB
Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances
as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be
reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB
Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy
or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no
reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may
from time to time have an interest in the securities mentioned by this report.
This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial
circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI
recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of
a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and
objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out
of the use of all or any part of this report.
RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing
activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking
and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its
own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction.
“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the
respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking
or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this
report or in RHBRI’s previous reports.
This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and
may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking
personnel.
The research analysts, economists or research associates principally responsible for the preparation of this research report have received
compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm
revenues.

Page 2 of 2
A comprehensive range of market research reports by award-winning economists and analysts are
exclusively available for download from www.rhbinvest.com